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Can we insure for climate change?

23 Oct 2017

How the industry responded to climate change could vary but Tim Grafton of the Insurance Council expected an "incremental and gradual transition" to meet issues around vulnerable properties.

The first might be to either increase excesses or premiums, or both.

Further down the track, companies might put exclusions in place, or withdraw coverage for some properties altogether.

"Having said that, a lot of coastal properties at the moment are not immediately at risk, but there are pockets of New Zealand where a combination of sea level rise and storm surges at high tide are affecting them even now."

More extreme weather events could lead to an increased pool of customers buying more insurance, which would in turn deepen the pool of insurance that was available.

But it could also make insurers more selective about the types of risks they took on if they had greater knowledge, Grafton said.

Last year, the ICNZ released a report that included 15 recommendations to address risks from natural hazards - and, like LGNZ, it demanded more information, more funding and a nationally co-ordinated strategy.

The group has also been closely involved with the Deep South National Science Challenge, a collaborative effort that has launched a wave of new insurance-focused research projects.

Catherine Iorns, of Victoria University's Faculty of Law, will investigate the tipping-points at which insurance companies might decide to refuse insurance to coastal property owners - and what happened after.

Iorns also hoped to determine to what extent homeowners could or should rely on the Earthquake Commission (EQC), or on local or central government, to compensate them if their homes become uninsurable or uninhabitable because of climate change.

Another Victoria University researcher, economics PhD student Belinda Storey, would separately look at "insurance retreat", or where insurance became unavailable.

Escalating coastal hazards did not seem to be reflected in home-owners' decisions to buy and renovate coastal property, and further, climate risk was likely not incorporated into the price of residential coastal property.

Evidence from overseas suggested that high insurance premiums and the unavailability of insurance had a stronger impact on private decision-making than even the uncertain risk of extreme events.

Storey's project therefore explored how coastal housing markets might be hit, and would pinpoint those places around the country likely to lose access to insurance within the next few decades.

A third programme, run by Otago University's Associate Professor Elisabeth Ellis, would ask which players the risks around sea level rise should fall upon, and what option was the fairest. A fourth, led by Motu Economic and Public Policy Research Trust, looked specifically at the EQC's role.

Although that agency mainly helped households suffering earthquake damage, homeowners affected by extreme weather like storms, floods or landslips could also make EQC claims for some damages.

More frequent and more intense weather might therefore affect the EQC's long-term sustainability.

Over the past 20 years, the EQC had paid out more than $240m on more than 17,000 claims, to households affected by non-earthquake disasters.

Motu's Dr David Fleming would study these claims and compare them with government data to better understand how the EQC had covered households over time and across regions after extreme weather events - and what the future held.

Naish said the urgent demand for better information made it a "huge responsibility" for experts, who were also faced with the complicating fact that the science was changing every month.

"But councils have to start dealing with this now - so we need our own authoritative science, that is rigorously done and peer-reviewed, and that will stand up in court. It gives planners confidence and it gives the public confidence."


 - NZ Herald

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